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Tesla Raises Prices Again But Not As Expected

It looks like the expected Tesla price increase has finally come– but not as high as originally anticipated.

As promised, the base price of the Model 3 remains the same at $35,000.  As for the Standard Range “Plus” Model 3 version, the price increased a mere $500, bringing its starting total to $37,500.  The prices on other Tesla variants seem to have only gone up by about $1,500.

Tesla Closing Stores, Reducing Costs

On February 28th, Tesla announced that it would be closing its stores and moving to online-only sales in an effort to cut costs and pass their savings on to their customers.  Prices were expected to drop as much as 6 percent across the entire range of Tesla electric vehicles, allowing them to keep the $35,000 price tag on the Model 3. 

But apparently the savings that Tesla expected from the closure of their stores just didn’t add up.  Part of that might be because they didn’t calculate the cost of breaking the leases for all of those stores.  According to Tesla’s latest 10-K filing, operating lease obligations add up to $1.6 billion over the next five years.  While this number is obviously not only related to its brick and mortar stores, even paying off a quarter of the amount promised to its landlords for those leases would definitely be problematic for a company struggling to stay in the black. 

Not surprisingly these decisions angered customers around the world who had just bought Tesla EVs at higher ticketed prices, and the constant mind-changing, poor communication, and uncertainty left Tesla retail employees feeling insecure about their future.  

No, Wait– Tesla Keeping Stores, Reducing Costs

Instead of closing its stores, Elon Musk revealed on March 11th that Tesla would instead globally invoke a 3 percent price increase on the upper-level Model 3, Model S, and Model X variants of its electric vehicles.  The price hike won’t apply to Tesla’s newly-announced Model Y compact SUV.

“Over the past two weeks we have been closely evaluating every single Tesla retail location, and we have decided to keep significantly more stores open than previously announced as we continue to evaluate them over the course of several months,” Tesla’s blog revealed after backpedaling on its earlier store closure announcement. A few previously closed stores may be reopened with fewer workers, and another 20 percent of Tesla locations will go under review before a final decision is made on their fate.

It’s been suspected that the pause of store closures had less to do with the Model Y crossover launch on March 14 and more as a tactic to increase slumping sales before the end of the fiscal quarter.

A Delay in Tesla’s Price Increases

The price increase was supposed to go into effect at midnight on Monday March 18th.  But again, Tesla changed their minds. 

“Due to unusually high volume, Tesla was unable to process all orders by midnight on Monday, so the slight price rise on vehicles is postponed to midnight Wednesday,” the company announced via Twitter. 

Tesla CEO Elon Musk continued to remind his 25 million Twitter followers to buy their EVs over the last week before the price hike came into effect. Again, it’s quite possible this was yet another gimmick to squeeze a few more sales in before the quarter ended.

Repercussions of Tesla’s Constant Flip-Flopping

This is the 5th price change of at least some Tesla products so far this year, and the constant upheaval is starting to result in flagging investor confidence.  After laying off 7 percent of its work force in January, the news of store closures is driving home the challenges looming before the automobile manufacturing industry newcomer.  Tesla has consistently struggled to make a few thousand cars a week, a feat which its more established competitors can complete in a day.

The weeks of strain have taken a toll on Tesla shares as well.  Between Musk’s announcement of both the store closures and Tesla’s expected lack of profit in the first quarter of 2019 and Monday’s initial purchasing deadline before the price increase, Tesla stock prices have dropped over 16 percent. 

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